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IN THE HIGH COURT OF JUDICATURE AT MADRAS
ABDUL QUDDHOSE, J.
The Official Assignee, High Court, Madras – Appellant
Versus
Vasavi Communications, Rep. by its Sole Proprietrix, K. Narmadha & Others – Respondents
Appln. (I.P.) No. 146 of 2015 in I.P.No. 14 of 2012
Decided On : 18-08-2023
PRESIDENCY TOWN INSOLVENCY ACT, 1909 - SECTION 55 - SALE DEED EXECUTED BY INSOLVENTS IN FAVOUR OF PURCHASERS - ISSUE OF GOOD FAITH AND VALUABLE SALE CONSIDERATION - INTERPRETATION OF SECTIONS 55, 91, 92 AND 99 OF THE INDIAN EVIDENCE ACT, 1872 - ANALYSIS OF CASE FACTS AND FINDINGS - RATIO DECIDENDI - DISMISSAL OF APPLICATION FILED BY OFFICIAL ASSIGNEE.
Fact of the Case:
The Official Assignee filed an application under Section 55 of the Presidency Town Insolvency Act, 1909 (1909 Act) to set aside a sale deed executed by the insolvents in favor of the purchasers on the grounds that it was not executed in "good faith" and "for valuable sale consideration."
Finding of the Court:
The Court held that the purchasers were bonafide purchasers who had purchased the property in good faith and for valuable sale consideration. The Court found that the Official Assignee had failed to discharge the initial burden of proof to show that the purchasers had purchased the property without good faith and without payment of valuable sale consideration. The Court also held that Sections 91, 92, and 99 of the Indian Evidence Act, 1872 had no applicability to the facts of the case as the purchasers had not let in any evidence that was in variance with the impugned sale deed.
Issues: 1. Whether the sale deed executed by the insolvents in favor of the purchasers was executed in "good faith" and "for valuable sale consideration" as required under Section 55 of the 1909 Act? 2. Whether the Official Assignee had discharged the initial burden of proof to show that the purchasers had purchased the property without good faith and without payment of valuable sale consideration? 3. Whether Sections 91, 92, and 99 of the Indian Evidence Act, 1872 were applicable to the facts of the case?
Ratio Decidendi: 1. The Court held that the purchasers were bonafide purchasers who had purchased the property in good faith and for valuable sale consideration. The Court found that the Official Assignee had failed to discharge the initial burden of proof to show that the purchasers had purchased the property without good faith and without payment of valuable sale consideration. The Court also held that Sections 91, 92, and 99 of the Indian Evidence Act, 1872 had no applicability to the facts of the case as the purchasers had not let in any evidence that was in variance with the impugned sale deed. 2. The Court relied on the following legal principles in reaching its decision: - The initial burden of proof is on the person seeking a particular relief from the Court. - Good faith is defined under the General Clauses Act as "a thing shall be deemed to be done in "good faith" where it is infact done honestly, whether it is done negligently or not." - The definition of "good faith" under the General Clauses Act can be imported if there is no definition available in the 1909 Act. - Sections 91, 92, and 99 of the Indian Evidence Act, 1872 apply to insolvency petitions.
Final Decision: The Court dismissed the application filed by the Official Assignee.
JUDGMENT
(Prayer: Application has been filed under Section 55 of the Presidency Town Insolvency Act, 1908 read with Order II Rule 1 of Insolvency Rules to set aside the sale in favour of the respondent Nos.3 and 4 under the sale deed dated 18.08.2011 registered as Document No.1752 of 2011, SRO Thyagaraya Nagar and declare the said sale null and void.)
The issue that arises for consideration in this application filed by the Official Assignee under Section 55 of the Presidency Town Insolvency Act, 1909 (Hereinafter referred to as “1909 Act“) is whether the sale deed dated 18.08.2011 executed by the respondent Nos.1 and 2 (Insolvents) in favour of the respondent Nos.3 and 4 (purchasers) has been executed in “good faith“ and “for valuable sale consideration“.
2. The debtor petition in I.P.No.14 of 2012 was filed by the respondent Nos.1 and 2 on 14.02.2012 to declare themselves as insolvents. They were adjudicated as insolvents by this Court on their petition vide order dated 16.02.2012 and thereafter, they had filed their statements on 12.06.2012.
3. According to the Official Assignee, the respondent Nos.1 and 2 (Insolvents) had disclosed in their statements to the Official Assignee that a residential property situated at No.4, Srinivas Apartments, Ground Floor, Sathulla Street, T.Nagar, Chennai (Hereinafter referred to as “Property“) was sold by them in the year 2011 for a sum of Rs.40,00,000/- to the fourth respondent.
4. According to the Official Assignee, it was discovered, based on a valuation report, that the market value of the property as on 18.08.2011 was Rs.43,90,000/-. However, according to the Official Assignee, in the sale deed dated 18.08.2011, the property has been conveyed by the respondent Nos.1 and 2 (Insolvents) to the respondent Nos.3 and 4 (Purchasers) for a sum of Rs.15,83,200/-.
5. According to the Official Assignee, the sale which is less than two years prior to the date of adjudication is void and the transfer of property by the respondent Nos.1 and 2 (Insolvents) was not a transfer made in favour of the purchasers viz., the respondent Nos.3 and 4 in good faith and for valuable consideration.
6. The respondent Nos.1 and 2 (Insolvents) have remained ex-parte in this application. The respondent Nos.3 and 4, who are the purchasers, have filed a counter to this application, denying the contentions of the applicant. They have contended that they are bonafide purchasers, having paid the valuable sale consideration for the purchase of the property from the insolvents. According to them, on the basis of the value of the building, the undivided share of the land, furniture, accessories, modular kitchen, AC, Television, 15 row cots made of teak wood, the valuable sale consideration payable to the insolvents was firmed up at Rs.50,50,000/-, which was the prevailing market rate and the sale agreement dated 18.02.2011 was entered into for the said price with the insolvents.
7. According to the respondent Nos.3 and 4 (Purchasers), the total sale consideration of Rs.50,50,000/- comprises of the following:
a) Rs.8,52,200/- was paid as sale consideration for the undivided share of the land;
b) Rs.7,31,000/- was paid as sale consideration for the super built up area and the sale deed dated 18.08.2011 for Rs.15,83,200/- was executed by the respondent Nos.1 and 2 (Insolvents) in favour of the respondent Nos.3 and 4;
c) The balance sale consideration of Rs.34,66,800/- was paid by the respondent Nos.3 and 4 towards furnishings, fittings, electrical items, household appliances, etc., i.e., the movables in the said flat, which amount that was paid towards movables is not subject to stamp duty nor does the sale of the said movables require registration under law and hence, not required to be mentioned in the sale deed.
8. According to the responde
AI
The initial burden of proof is on the person seeking a particular relief from the Court. In the case of an application filed under Section 55 of the 1909 Act, the Official Assignee has to first disch....
Insolvency law requires the burden of proof for insolvency claims to rest with creditors, and purchasers must demonstrate bona fide acquisition under the Provincial Insolvency Act.
The Insolvency Court lacks jurisdiction to annul transactions if the debtor has not been legally adjudicated as insolvent, rendering such annulments void.
The validity of a registered sale deed is presumed and the burden of proving its invalidity due to fraud lies on the challengers.
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